HOA vs Condos in new development ofrental townhomes
Hi Everyone!
I am building a new 14 unit townhome project near Rochester NY. We have the first building started and am still early in the construction process. Our goal is to build, own and rent these units. When we first started we planned to have an HOA govern the development of 7 duplexes with a fee simple ownership structure for each building. We were talking to another large developer in our area and he mentioned we should pivot from an HOA to a Condo project due to the property tax savings as a condo vs a fee simple ownership model. This land could not be developed as a multifamily development due to the zoning so our tax rate is that of a single family home. If we change the ownership to condos we believe we will be taxes closer to a multifamily project which could save a lot of money in property taxes each year.
I am waiting to hear back from my civil engineer on his experiences with condo development in this town and our area. If he thinks this project would be a good fit and if the town will let us do this. Our legal council is looking for someone in his firm that has done a condo development and what their recommendation would be. I have a meeting next week with the towns director of development and the town assessor to see if this is an option for this project. I have a few books coming this week to get familiar with condos and have been scouring the internet and YouTube.
Obviously I will have to consider the cost associated with the legal documents for HOAs vs Condos, Engineering fees with additional drawings and time, financing options for a condo vs a duplex, exit strategies for each and everything else that I have not thought of yet! Vs potential property tax savings.
Is there any reason we should not develop as condos? Everything I have found and heard so far we should proceed with a the condo direction.
Have people had bad experiences being the sole owner of a condo project?
Is there anything obvious I have not thought about yet that would be a deal breaker as condos?
Thank you!
I'm not super fluent in HOA legal docs but for condos, you'll need to file an offering plan with the NY State Attorney General which is, in my experience, is a super involved process that, i suspect, will cost a good bit for your lawyer to create than HOA docs. The NY AG need to approve the docs (they often have comments) and it generally takes more than 6 months to get them approved. You can't start selling until the offering plan is approved. If you want to take a look at other offering that have been approved by the AG, check out this website:
Hi Zachary - Thank you for the information and the link. Both have been very helpful!
We are going to have to create an de minimis HOA when we go to sell the project but in the mean time since it is owned by myself the town is not requiring us to create a legal structure yet. I did talk with the development team and not many people in our area use Condos for their legal structure due to the upfront cost. It also looks like NYS had some property tax benefits for Condo ownership for real estate compared to HOAs. I think they closed the loophole this past summer.
Thanks again!
